Strong economy to take office leasing to 40-45 mn sq ft in 2023: Colliers

In the quarter that ended on June 31, the highest QoQ change in demand for offices was noted in Chennai at 113 per cent to 3.3 mn sq ft

The Indian office sector is expected to record 40-45 million square feet of gross leasing across the top six markets in 2023, according to a report released by real estate consultancy Colliers. It is 10-15 per cent higher than Colliers' earlier prediction.

In its "India office market - Changing winds" report released on Thursday, the consultancy attributed the higher demand to a resilient economic outlook.

"At the global level, the economic forecast for 2023 is modestly higher than predicted in April 2023, pulled by marginal improvements in the US, UK and Europe. This gradual but definite recovery surely fastens up the levers to revive external sectoral demand, thereby impacting India office demand," it said.

 

The report was based on data from six Indian cities: Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.

2023 started on a cautious note, registering 10.1 mn sq ft of gross absorption in the quarter that ended on March 31. However, in the next quarter, a relatively faster recovery was noted. In the quarter, India registered 14.6 mn sq ft of leasing activity, a growth of around 50 per cent quarter-on-quarter (q-o-q).

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"In fact, improvement in business sentiments across varied demand segments and a visible uptick in the domestic economy translated into this growth in leasing activity," the report read.

The highest q-o-q change was noted in Chennai, where the demand grew 113 per cent in the June quarter to 3.3 mn sq ft. Pune followed it with a growth of 109 per cent to 1.7 mn sq ft and Mumbai growing at 61 per cent at 1.6 mn sq ft.

"Macroeconomic indicators have been displaying consistent positive signals. Certain parameters have become more emphatic in recent months. While repo rates have probably entered a stable phase, GST collections, manufacturing & service indices and equity markets, in general, have been reflecting strong undercurrents of accelerated momentum," said Peush Jain, managing director of office services at Colliers India.

"The momentum is likely to continue in the year's second half and ultimately result in better than anticipated office market performance in 2023. June quarter has already set the tone for a stronger 2023."

Tech sector leading the demand for offices

According to the report, the tech sector, primarily rooted in the US, EU, and UK, significantly affects office space leasing in India.

"Concurrently, a notable surge in demand has been observed among domestic occupiers, particularly those in the engineering and manufacturing sectors, during the first half of 2023," it said.

In the first six months of 2023, the technology sector led the office space demand at 24 per cent share, followed by flex space and engineering & manufacturing sectors at 18 per cent and 17 per cent, respectively.

"The services and manufacturing PMIs also registered significant peaks in 2023, indicating healthy growth of these critical demand sectors going forward. As the occupier confidence improves further, leasing momentum across pivotal sectors is likely to continue in the second half of the year," said Vimal Nadar, senior director and head of research, Colliers India.